The promise of tomorrow, the reality of today

The promise of tomorrow, the reality of today

There are times when we just shack our heads and wonder what people are thinking. Today Insulet (NASDAQ: PODD) conducted their investor day. Before the day began they also announced that after nearly 11 years they have reached the 100,000 installed users. Just by way of comparison Tandem (NASDAQ: TNDM) who has only been around for 4 years has an installed base of over 46,000. So, while the 100,000 uses are nice it could be asked why it took so long, but we digress.

Perhaps the most shocking news coming out of this event is what didn’t happen. Given the news that was reported yesterday, that OmniPod just might be killing children, never came up. While we weren’t sure if management would address this in their prepared remarks we thought for sure it would come up in the Q&A. Boy were we wrong. It was as if either the analysts were told not to bring this up or the analysts aren’t paying attention.

Now we want to make some things clear here. First we do not know if this report is the start of a coordinated attack by short-sellers, something we have seen in the past. Second, we are of course investigating and so far, we do not like what we’ve been hearing. Third, it is just a matter of time before the company is hit with a series of lawsuits, this is the American way. Fourth, our sources have confirmed that the quality issues with the pod thought to have been solved have NOT gone away. They have also confirmed that current and former Insulet employees have brought this to the attention of the Board who have ignored their concerns. Fifth, companies once interested in acquiring Insulet have walked away over these quality concerns.

Frankly it almost doesn’t matter what the company said during this cheerleading session. For all the promise of what comes tomorrow, the realities of today could bite them in the ass. Should and we stress should these reports lead to a recall by the FDA watch out below. All the best laid plans of tomorrow will come to a crashing halt.

Even if nothing happens as much as we liked what we saw and heard today about the promise of tomorrow the realities of today will haunt Insulet. Let’s say we’re right and Medtronic (NYSE: MDT) does acquire Tandem. And let’s further assume that the reports coming out of Johnson and Johnson (NYSE: JNJ) are also accurate, that they are going to let Animas twist in the wind. Seriously we do feel sorry for the good people at Animas, but again we digress.

Let’s also assume that Bigfoot will launch before Insulet gets their artificial pancreas and does so using the shave club for men pricing model. (By the way we hate the term artificial pancreas and quite frankly many in the insulin pump world feel the same way. The JDRF is largely to blame here as the 670G or many of the so-called artificial pancreases are not artificial pancreases at all. Yes, they are a vast improvement over existing pump technology but they are not a system that a patient simply slaps on and never touches ever again. The JDRF in their zeal to raise more money has put pump companies in a no-win situation. But again, we digress.) Oh, and we should mention that maybe just maybe Bigfoot might become very closely aligned with their neighbors in Mountain View.

By their own admission Insulet will not have any new products until 2018 at the earliest. No matter how cool or whiz bang by then it may be too late. Given how this market is consolidating combined with the power Medtronic has with payors, Insulet will once again be swimming uphill. Yes, between now and then they will improve margins and likely add more users. But the insulin pump market is all about sensor augmented systems they don’t have one and won’t have one for at least 2 years, and that assumes everything goes as planned.

Here is a pesky fact that should be consider by the blind mice otherwise known as analyst who cover Insulet, once a patient choses a system it’s rare that they would switch, even if something supposedly better comes along. This is what Medtronic is counting on, get as many patients as possible on the 670G and lock up the lion’s share of the closed loop market. This is another reason buying Tandem makes so much sense.

Think what would happen if Animas, actually the mothership in New Jersey, switch gears (hey it’s been known to happen) and doesn’t go home but goes big. Think what would happen if Bigfoot and their neighbors decide to dance together. Where would Insulet be? Still two or more years away from being in the hottest segment of the insulin pump market. Listen being wireless is nice but having a much smarter pump that works with a CGM overcomes this.

We love being wireless but we love also value our time and would rather spend less time worrying about our diabetes management. This is the hidden benefit of all these new systems they really do make diabetes management easier for the patient. They provide patients with a greater set of options. No, they are NOT artificial pancreases but they are by far better insulin pumps.

Insulet is trying to sell the promise of tomorrow because when someone looks at the realities of today it’s not as pretty of a picture. A picture that will turn ugly should these reports about patient deaths turn out to be accurate. We would tread carefully with Insulet, they have made great strides since Pat took over but the true test of his leadership might just be beginning.